6. Production

From isoquants through cost minimization to average and marginal cost curves — a tour of producer theory.

• Isoquants — This scene draws the isoquant map of a production function. An isoquant joins input mixes that make the same output. Move the reference input point and the tangent slope changes. That slope is the marginal rate of technical substitution below. It says how much of one input replaces a unit of the other. For example, one fewer 🧑 worker plus one more ⚙️ machine still bakes 100 🍞 bread rolls. The scarcer workers get, the more each worker is worth.
• Cost Minimization — This scene finds the cheapest input mix for a target output. The cheapest mix is where the isoquant touches an isocost line. When a factor price changes, that spot slides. You use less of the pricier input and more of the cheaper one. The lowest cost then becomes the cost function below. For example, baking 100 🍞 bread loaves, 💵 wages rise but ⚙️ machine prices stay put. The cheapest mix then uses fewer 🧑 workers and more machines.
• Cost Curves — This scene pulls marginal and average cost curves out of a total cost curve. Marginal cost is the extra cost of making one more unit. Average cost is total cost divided by quantity. When one more unit costs less than the average, the average falls. So the marginal cost curve passes exactly through the lowest point of average cost. For example, a 🏪 shop's average cost is 1,000 won per 🍞 bread loaf. Baking one more costs 800 won, so the average falls. At 1,200 won, the average rises instead. That is why marginal cost meets average cost at its lowest point.